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ADF Foods: A Healthy Recipe For Investors

Food processing is ingrained in India. Traditional Indian processed food items such as pickles, papads, chutneys and murabbas which use simple home-based preparation techniques have given India a distinct recognition worldwide.

According to the Ministry of Commerce, the Indian food processing industry accounts for 13% of India’s exports. Out of total industrial investments made in India, approximately 6% cater to the food processing industry. That said, only about 10% of India’s total agriculture produce is processed at present. This leaves tremendous scope for future growth.

No wonder, the food processing industry is one of the key industries promoted under the Make in India programme.

Is there any investment idea from the food processing industry worth sharing at present?

Yes, is the answer!

Recently, ADF Foods Limited caught our attention.

ADF Foods is one of India’s leading ethnic Indian food companies. It derives 95% of its revenues from exports. The Company has two production facilities, one each at Nashik in Maharashtra and Nadiad in Gujarat.

After experiencing a muted growth between FY 2011 and FY 2016, ADF Foods is likely to post healthy growth numbers over the next three fiscals starting from FY 2019. In our assessment, from Rs 209 crore in FY 2018, Company’s net revenues will grow at a compounded annualised rate of 16.8% to touch Rs 333 crore by FY 2021.

The recent capex of Rs 12 crore will help the Company shore up the revenues from frozen food segment, which contributed around 30% of FY 2018 top line. We also expect, ADF Foods to report margin expansion, going forward. Depreciating Rupee might offer further tailwinds.

It’s a virtually debt-free company. The recent buy-backs reflect management’s confidence in the future prospects of the Company.

ADF Foods: Will it rally further?

(Source: ACE Equity)

The Company has a market capitalisation of Rs 520 crore. The stock is available at the forward (FY 2021) Price-to-Earnings (PE) of 13.5. With judicious use of capital and expected margin expansion, we expect ADF Foods to witness a significant improvement in return ratios.

We are hopeful that the overall good performance would reflect in the stock price action as well.

About Us.

Ventura Securities Ltd. is a well diversified financial services firm offering Retail and Institutional Broking in Equities, Mutual Funds Distribution, Commodities Broking. Ventura operates in a network spread over numerous cities and locations in association with its business partners